Business Cash Flow Working Capital | 7 Park Avenue Financial

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Business Cash Flow And Working Capital – Are We There Yet ? !
Are We There Yet? Good At Managing / Financing  Your Firm's Cash Flows?




 

YOUR COMPANY IS LOOKING FOR BUSINESS CASH FLOW

& WORKING CAPITAL SOLUTIONS!

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the  biggest issues facing business today

ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT  BUSINESS  FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

working capital financing and cash flow management  operating working capital finance

 

 

 

 

 

 

 

Business cash flow. A lot of business owners we meet at 7 Park Avenue Financial are often thinking a lot about the long term for their business, sometimes forgetting the importance of working capital management and solutions for their business. Let's explain.

At certain times in the economy, pandemics included! there will always be times when companies are severely restricted due to their inability to unlock cash flow inside the company as well as finding their ability to grow without business capital very limited. Larger companies place strong metrics on senior management around working capital success as reflected in the financial statements.

 

 

WHY CASH FLOW FINANCING? 

 

Good cash flow finance solutions allow a business to access the working capital it needs to grow the business - Avoiding the ' cash flow crunch ' becomes job 1!  The day-to-day cash inflows of a business should generally not be used to fund long-term capital assets or to make investments of a long term nature - Thats a common mistake made by many business owners.

Business cash flow solutions make sense if a business has demonstrated the ability to grow sales and manage asset turnover - it allows for funding short-term sales initiatives, r&d, as well as financing day-to-day inventory purchases around supplier discount opportunities, etc.   It also allows businesses to manage the investment they make in accounts receivable as sales grow.

 

We have outlined some short term fixes as well as identifying more intermediate and longer-term solutions to the cash crunch. Naturally larger companies have the ability to delay payables because of their market clout and size, the SME economy does not have that luxury.

On the other side of the balance sheet just simply speeding up invoicing will help cash flow - business owners should check out ' cycle billing ', used by many firms and institutions.

 

CASH FLOW VERSUS ASSET BASED LENDING

 

Business borrowing provides the power for businesses to both start, grow and expand.   Banks, commercial finance companies and asset-based lenders offer both secured and unsecured financing solutions. It is important for the business owner to understand the difference between asset-based lending and cash-flow financing solutions. Asset-backed solutions require business collateral, typically accounts receivable, inventories, fixed assets, as well as company owner commercial real estate-

On the other hand, cash flow loans require the business to demonstrate good cash flows to allow for the repayment of debt or short-term loans. Knowing what suitable type of financing your business is qualified for is key to business success.

 

IS YOUR BUSINESS FINANCING ALIGNED WITH YOUR BUSINESS GROWTH GOALS?

 

A better way to look at things might be to ensure your short-term financing objectives and solutions are more closely tied to your long-term goals for growing your business.  So of course growth and profits are important, but ' keeping the books and finding the funds ' can never be overlooked. Those functions are important if you're growing your business or even considering buying a competitor or making a strategic acquisition.

 

 

 

DO YOU KNOW YOUR ALTERNATIVES AND SOLUTIONS?

  

 

We meet a lot of clients/business owners who feel somewhat overwhelmed at the financing management of their firm - to the point where they in fact are spending a lot of time on those things, but not really understanding their alternatives and potential solutions. How much cash you need will also factor directly into your growth plans. The amount of money you need will also potentially direct you to the type of financing your company requires relative to your revenues around products and services.

 

 

MANAGING CASH / FORECASTING CASH/ FINANCING WORKING CAPITAL NEEDS  

 

Business cash flow management arises from the fact that the business owner and financial manager recognize the need to control cash, forecast it, and raise it through debt or asset monetization.

 

 

 

CASH FLOW IS TIED TO PROFITS AND YOUR SALES REVENUES! 

 

Remember also that cash flow is tied to your overall profits, sales, and your ability to monetize assets. Another good point to consider in your search for financing solutions is to have a strong handle on larger capital outlays and the cost of goods sold - if you are in a capital-intensive business. Committing to larger cash outflows will always have a large effect on your business for a long period of time

 

It's probably somewhat of an overworked phrase but cash flow really and truly is the lifeblood of your business. That's not the biggest secret in town. The simplest way to look at this is to monitor financial performance and get a handle on the timing of your cash as it relates to outflows and inflows via a regular focus on cash flow projection.

 

 

UNDERSTAND THE OPERATING CYCLE OF YOUR BUSINESS - HOW LONG DOES IT TAKE FOR A DOLLAR TO FLOW THROUGH YOUR COMPANY ?!

 

 

 That's really the simple explanation for your ' operating cycle ‘, and not having Canadian business financing solutions in place for those outflows and inflows simply generates  ... you guessed it .. a cash flow crisis.  Time and time again we ourselves have been intrigued by great or growing companies that were profitable but failed due to that cash flow crisis. Your ability to accelerate cash inflows will reduce the total days of that ' operating cycle '.

 

A good way to get a handle on the ' big picture ' is to take a quick look at your balance sheet and consider ' gross working capital ' and 'networking capital '. The ' gross ' part is simply the sum of all your current assets. The 'net ' is the difference between current assets and current liabilities. Understanding some basic ratios  ( at 7 Park Avenue Financial we have always called them 'relationships') such as net working capital is key to understanding your business challenges and needs.

 

The cash flow statement is the third and final part of your financial statements and is often overlooked by business owners - it covers 3 areas of cash flow, including operating cash flow. Changes in working capital reflect your asset turnover management in areas such as inventory and accounts receivable.

The income statement and the balance sheet are the first 2 parts of your financial statements, along with the cash flow statement. Spending time looking at your operating activities is time well spent. Financial statements are a key part of any business loan application and reflect the amount of cash you need as well as the long-term debt position.

 

ASSET TURNOVER IS KEY TO BUSINESS SUCCESS

 

Where business owners go wrong is when they don’t understand the actual level of asset turnover in those accounts. So having a great, large current ratio might be in fact a prediction of failure down the road as your accounts and inventory are uncollected and not turning over - severely affecting your company's net income. Current liabilities of course will reflect your accounts payable status and many business owners miss the point that slowing accounts payable increases cash flow - but potentially at the risk of vendor/supplier relations.

 

Oh, by the way, your suppliers and lenders look at that same issue as your ability to repay payables and make loan and lease payments.

 

THE BUSINESS LENDER PERSPECTIVE

 

From the business lender's perspective around cash flow lending techniques, the focus will always be on where and how your business derives cash inflows for loan payments - that will also to a large extent determine if qualifications for business loans and financing can be met. When no collateral is provided by a business it's all about the quality of asset management around receivable turns, as well as how your business manages accounts payable and inventory as reflected in the cash flow statements of a business.

 

 

 

CANADIAN BUSINESS FINANCING SOLUTIONS

 

  

Business cash flow loans assist businesses in financing their day-to-day funding needs -  Lender approvals will focus on a variety of circumstances including sales revenues as well as the business experience and personal credit of business owners.  The best business financing comes with understanding the requirements for a particular type of financing and ensuring rates and financing costs are competitive.

 

Once you understand and focus on your flow of funds you are in a better position to assess business cash flow and working capital solutions. The ability to address negative working capital scenarios is key. Solutions might include:

 

A/R Financing-

Accounts receivable financing solutions are short-term funding solutions for outstanding invoices - A/R financing firms fund unpaid invoices with typically a 90% loan to value advance -This allows the business to not have to wait for anywhere from 30-90 days for client payments based on their payment terms or client payment habits - Financing rates tend to be in the 1.14%  per month range and eligibility is based on the quality of the business's accounts receivable - Thousands of firms who cant access bank financing utilize the a/r financing solution.


Inventory Loans  - cash flow loans for small business inventory needs are often combined within a business credit line solution


Access to Canadian bank credit -

Canadian banks offer a business line of credit that revolve, around allowing the company to draw down cash as needed - Business lines of credit allow a business to fund a variety of day-to-day needs, and the company only pays interest/financing costs on funds that are drawn down under the facility.  Companies applying for bank credit lines must meet stringent bank requirements around balance sheet and cash flow performance.


Non bank asset based lines of credit

 

Asset-based business lines of credit allow businesses to leverage the sales and assets of their business - Asset-based financing can help businesses of all sizes provide a unique more tailored approach to business credit lines needs - These facilities are often more flexible than bank lines of credit and provide higher advances based on margins on receivables, inventory and fixed assets that exceed bank margin facilities around unsecured bank lines -

 

ABL term loans can also be included in the overall financing package and this method of business financing comes with very few covenants - which is the other significant difference when compared to financing by banks and traditional financial institutions. These facilities can help a business grow, as well as being an often ideal solution to an acquisition financing package. Many businesses and industries that are seasonal or cyclical can benefit from this method of lending - including firms that required restructuring that can't be accomplished through traditional lending - Management buyouts are often done via an asset-based acquisition loan


SR&ED Tax credit financing


Equipment / fixed asset financing


Cash flow loans


Royalty finance solutions

 

Short Term Working Capital Loans/ Merchant Advances  (typically repaid in 12 months )

 

Short-term working capital loans, sometimes known as merchant cash advances, is a lump sum installment loans based on a basic formula around company sales revenues and the personal credit history of the business owners. Repayment is typically structured around a 1-2 year payback via regular installments - these loans are highly accessible but come with a higher cost/interest rate.

 

 

KEY TAKEAWAYS IN CASH FLOW FINANCING SOLUTIONS

 

Businesses should be prepared to evaluate the different types of cash flow loans while focusing on the type of loan that meets their particular company and industry needs

Financing costs and interest rates vary based on a number of key issues such as the size of the business, lender type ( traditional or alternative)  and overall business creditworthiness

Timing is critical in business and borrowers should be prepared to  endure timelines that come with various types of financing

Being prepared for business financing involves the preparation of proper financial statements - a business plan will always help, as well as other key documentation that might be required by the type of lender and type of loan

Requirements  for company or external collateral should be properly assessed

 

 

CONCLUSION -  THE BENEFITS OF SOLID CASH FLOW FINANCING

 

Everyone agrees that financial health and solid asset turnover will allow your company to profit and grow, allowing you to take advantage of opportunities to grow revenues. How you manage your receivables, payables and cash will always be a measure of your financial health. It is easy to confuse cash flow and working capital, a simple way to look at it is that working capital is an immediate issue while your company over time will hopefully prove it can generate cash. Cash flow and profits are very rarely the same numbers in your financials.

 

The bottom line? Speak to 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor on finance solutions that make sense for your company in managing your assets and growth.

 

FAQ: FREQUENTLY ASKED QUESTIONS /PEOPLE ALSO ASK /MORE INFORMATION

What is a cash flow loan?

Cash flow loans are also called working capital finance loans and are used to fund day-to-day operations as well as fill in the gap when a cash shortfall exists. Unexpected changes will always happen as business revenues fluctuate - Cash flow loans and mezzanine financing solutions focus on the proven cash flows of the business and typically do not require external collateral -  Solid business management will focus on matching short-term inflows of cash and the management of payables -

 

Many types of working capital solutions are tailored specifically to business needs and come with flexible terms and amortizations.  Positive cash flow performance is a key aspect of cash flow financing, and business should be prepared to forecast cash flow performance based on historical and present cash flow statements.

Cash generated by the business is used to repay the financing and small business owners should be prepared to present accurate cash flow projections around a cash flow positive business and operating income. Historical cash flows must also be assessed in the context of taking on future financial obligations. Firms experiencing negative cash flow or other cash flow issues will not qualify for this method of financing.

 

Short-term business loans revolve around a company's expected cash flows demonstrating healthy cash flow performance. The cash flow statement of any business is one of the 3 key parts of business financial statements and shows generated cash flow. The cash flow statements show financing activities also and are one of the best cash flow management tools to allow a business net cash positive performance. Healthy cash flow should be a key performance metric in any business.

 

What are  3 sources of finance?

Government Loans

Commercial finance companies / asset-based lenders

Owner equity / personal savings


 

' Canadian Business Financing With The Intelligent Use Of Experience '

 STAN PROKOP
7 Park Avenue Financial/Copyright/2024

 

 

 

 

 

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil